ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-51845

FEDERAL HOME LOAN BANK OF ATLANTA

(Exact name of registrant as specified in its charter)

Federally chartered corporation

56-6000442

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1475 Peachtree Street, NE, Atlanta, Ga.

30309

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (404) 888-8000

____________________________

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Class B Stock, par value $100

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes x No

Registrant’s stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. At June 30, 2014, the aggregate par value of the stock held by current and former members of the registrant was $4,927,857,000. At February 28, 2015, 47,191,460 total shares were outstanding.

In this annual report on Form 10-K (Report), unless the context suggests otherwise, references to the “Bank” mean the Federal Home Loan Bank of Atlanta. “FHLBanks” means the 12 district Federal Home Loan Banks, including the Bank, and “FHLBank System” means the FHLBanks and the Federal Home Loan Banks Office of Finance (Office of Finance), as regulated by the Federal Housing Finance Agency (Finance Agency). “FHLBank Act” means the Federal Home Loan Bank Act of 1932, as amended.

The information contained in this Report is accurate only as of the date of this Report and as of the dates specified herein.

The product and service names used in this Report are the property of the Bank and, in some cases, the other FHLBanks. Where the context suggests otherwise, the products, services, and company names mentioned in this Report are the property of their respective owners.

Special Cautionary Notice Regarding Forward-looking Statements

Some of the statements made in this Report may be “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provided by the same. Forward-looking statements include statements with respect to the Bank’s beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, many of which may be beyond the Bank’s control and which may cause the Bank’s actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the forward-looking statements. The reader can identify these forward-looking statements through the Bank’s use of words such as “may,” “will,” “anticipate,” “hope,” “project,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “could,” “intend,” “seek,” “target,” and other similar words and expressions of the future. Such forward-looking statements include statements regarding any one or more of the following topics:

•

the Bank’s business strategy and changes in operations, including, without limitation, product growth and change in product mix;

those other factors identified and discussed in the Bank’s public filings with the Securities and Exchange Commission (SEC).

It is important to note that the description of the Bank’s business is a statement about the Bank’s operations as of a specific date. It is not meant to be construed as a policy, and the Bank’s operations, including the portfolio of assets held by the Bank, are subject to reevaluation and change without notice.

The forward-looking statements may not be realized due to a variety of factors, including, without limitation, any one or more of the following factors:

•

future economic and market conditions, including, for example, inflation and deflation, the timing and volume of market activity, general consumer confidence and spending habits, the strength of local economies in which the Bank conducts its business, and interest-rate changes that affect the housing markets;

•

demand for Bank advances resulting from changes in members’ deposit flows and credit demands, as well as from changes in other sources of funding and liquidity available to members;

•

volatility of market prices, rates, and indices that could affect the value of collateral held by the Bank as security for the obligations of Bank members and counterparties to derivatives and similar agreements;

•

the risk of changes in interest rates on the Bank’s interest-rate sensitive assets and liabilities;

changes in various governmental monetary or fiscal policies, as well as legislative and regulatory changes, including changes in accounting principles generally accepted in the United States of America (GAAP) and related industry practices and standards, or the application thereof;

•

changes in the credit ratings of the U.S. government and/or the FHLBanks;

•

political, national, and world events, including acts of war, terrorism, natural disasters or other catastrophic events, and legislative, regulatory, judicial, or other developments that affect the economy, the Bank’s market area, the Bank, its members, counterparties, its federal regulator, and/or investors in the consolidated obligations of the FHLBanks;

•

competitive forces, including other sources of funding available to Bank members, other entities borrowing funds in the capital markets, and the ability to attract and retain skilled individuals;

•

the Bank’s ability to develop, implement, promote the efficient performance of, and support and safeguard, technology and information systems, including the internet, sufficient to measure and effectively manage the risks of the Bank’s business without significant interruption;

•

changes in investor demand for consolidated obligations of the FHLBanks and/or the terms of derivatives and similar agreements, including changes in investor preference and demand for certain terms of these instruments, which may be less attractive to the Bank, or which the Bank may be unable to offer;

•

the Bank’s ability to introduce, support, and manage the growth of new products and services and to successfully manage the risks associated with those products and services;

•

the Bank’s ability to successfully manage the risks associated with any new types of collateral securing advances;

•

the availability from acceptable counterparties, upon acceptable terms, of swaps, options, and other derivative financial instruments of the types and in the quantities needed for investment funding and risk-management purposes;

•

the uncertainty and costs of litigation, including litigation filed against one or more of the FHLBanks;

•

changes in the FHLBank Act or Finance Agency regulations that affect FHLBank operations and regulatory oversight;

•

adverse developments or events, including financial restatements, affecting or involving one or more other FHLBanks or the FHLBank System in general; and

•

other factors and other information discussed herein under the caption “Risk Factors” and elsewhere in this Report, as well as information included in the Bank’s future filings with the SEC.

The forward-looking statements may not be realized due to a variety of factors, including, without limitation, those risk factors provided under Item 1A of this Report and in future reports and other filings made by the Bank with the SEC. The Bank operates in a changing economic environment, and new risk factors emerge from time to time. Management cannot accurately predict any new factors, nor can it assess the effect, if any, of any new factors on the business of the Bank or the extent to which any factor, or combination of factors, may cause actual results to differ from those implied by any forward-looking statements.

All written or oral statements that are made by or are attributable to the Bank are expressly qualified in their entirety by this cautionary notice. The reader should not place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made. The Bank has no obligation and does not undertake publicly to update, revise, or correct any of the forward-looking statements after the date of this Report, or after the respective dates on which these statements otherwise are made, whether as a result of new information, future events, or otherwise, except as may be required by law.

The Bank is a federally chartered corporation organized in 1932 and one of 12 district FHLBanks. The FHLBanks, along with the Finance Agency and the Office of Finance, comprise the FHLBank System. The FHLBanks are U.S. government-sponsored enterprises (GSEs) organized under the authority of the FHLBank Act. Each FHLBank operates as a separate entity within a defined geographic district and has its own management, employees, and board of directors. The Bank's defined geographic district includes Alabama, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, and the District of Columbia.

The Bank is a cooperative owned by member institutions that are required to purchase capital stock in the Bank as a condition of membership. All federally insured depository institutions, insurance companies, and community development financial institutions (CDFIs) chartered in the Bank's defined geographic district and engaged in residential housing finance are eligible to apply for membership. The Bank's stock is owned entirely by current or former members, and certain non-members that own the Bank's capital stock as a result of a merger or acquisition of a Bank member, and is not publicly traded. As of December 31, 2014, the Bank's membership totaled 958 financial institutions, comprising 664 commercial banks, 93 thrifts, 183 credit unions, 16 insurance companies, and two CDFIs.

The primary function of the Bank is to provide readily available, competitively priced funding to these member institutions. The Bank serves the public by providing its member institutions with a source of liquidity, thereby enhancing the availability of credit for residential mortgages and targeted community development.

The primary source of funds for the Bank is proceeds from the sale to the public of FHLBank debt instruments, known as “consolidated obligations,” or “COs,” which are the joint and several obligations of all of the FHLBanks. The Office of Finance, a joint office of the FHLBanks, facilitates the issuance and servicing of the FHLBanks' debt instruments and prepares the combined quarterly and annual financial reports of the FHLBanks.

Deposits, other borrowings, and the issuance of capital stock provide additional funds to the Bank. The Bank accepts deposits from both member and eligible non-member financial institutions and federal instrumentalities. The Bank also provides members and non-members with correspondent banking services such as cash management and other services, as discussed below.

The Bank is exempt from ordinary federal, state, and local taxation, except real property taxes, and it does not have any subsidiaries nor does it sponsor any off-balance sheet special purpose entities.

The Bank manages its operations as one business segment. Management and the Bank's board of directors review enterprise-wide financial information in order to make operating decisions and assess performance. As of December 31, 2014, the Bank had total assets of $138.3 billion, total advances of $99.6 billion, total investments of $36.5 billion, total COs of $129.3 billion, total deposits of $1.1 billion, and a retained earnings balance of $1.7 billion. The Bank's net income for the year ended December 31, 2014 was $271 million. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding the Bank's financial condition, changes in financial condition, and results of operations.

The Finance Agency was established as the independent regulator of the FHLBanks effective July 30, 2008 with the passage of the Housing and Economic Recovery Act of 2008 (Housing Act). Pursuant to the Housing Act, all regulations, orders, determinations, and resolutions that were issued, made, prescribed, or allowed to become effective by the former Federal Housing Finance Board (Finance Board) will remain in effect until modified, terminated, set aside, or superseded by the Finance Agency Director, any court of competent jurisdiction, or operation of law. The Finance Agency's stated mission with respect to the FHLBanks is to provide effective supervision, regulation, and housing mission oversight of the FHLBanks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market.

The credit products that the Bank offers to its members include advances and standby letters of credit.

Advances

Advances are the Bank's primary product. Advances are fully secured loans made to members and eligible housing finance agencies, authorities, and organizations called “housing associates” (non-members that are approved mortgagees under Title II of the National Housing Act). The carrying value of the Bank's outstanding advances was $99.6 billion and $89.6 billion as of December 31, 2014 and 2013, respectively, and advances represented 72.0 percent and 73.2 percent of total assets as of December 31, 2014 and 2013, respectively. Advances generated 26.5 percent, 29.5 percent, and 30.2 percent of total interest income for the years ended December 31, 2014, 2013, and 2012, respectively.

Advances serve as a funding source to the Bank's members for a variety of conforming and nonconforming mortgages. Thus, advances support important housing markets, including those focused on low- and moderate-income households. For those members that choose to sell or securitize their mortgages, advances can supply interim funding.

Generally, member institutions use the Bank's advances for one or more of the following purposes:

•

providing funding for single-family mortgages and multifamily mortgages held in the member's portfolio, including both conforming and nonconforming mortgages;

•

providing temporary funding during the origination, packaging, and sale of mortgages into the secondary market;

•

providing funding for commercial real estate loans;

•

assisting with asset-liability management by matching the maturity and prepayment characteristics of mortgage loans or adjusting the sensitivity of the member's balance sheet to interest-rate changes;

Pursuant to statutory and regulatory requirements, the Bank may make long-term advances only for the purpose of enabling a member to purchase or fund new or existing residential housing finance assets, which may include, for community financial institutions, defined small business loans, small farm loans, small agri-business loans, and community development loans. The Bank indirectly monitors the purpose for which members use advances through limitations on eligible collateral and as described below.

The Bank obtains a security interest in eligible collateral to secure a member's advance prior to the time the Bank originates or renews an advance. Eligible collateral is defined by the FHLBank Act, Finance Agency regulations, and the Bank's credit and collateral policy. The Bank requires its borrowers to execute an advances and security agreement that establishes the Bank's security interest in all collateral pledged by the borrower. The Bank perfects its security interest in collateral prior to making an advance to the borrower. As additional security for a member's indebtedness, the Bank has a statutory and contractual lien on the member's capital stock in the Bank. The Bank also may require additional or substitute collateral from a borrower, as provided in the FHLBank Act and the financing documents between the Bank and its borrowers.

The Bank assesses member creditworthiness and financial condition typically on a quarterly basis to determine the term and maximum dollar amount of advances the Bank will lend to a particular member. In addition, the Bank discounts eligible collateral and periodically revalues the collateral pledged by each member to secure its outstanding advances. The Bank has never experienced a credit loss on an advance.

The FHLBank Act affords any security interest granted to the Bank by any member of the Bank, or any affiliate of any such member, priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), other than claims and rights of a party that (1) would be entitled to priority under otherwise applicable law; and (2) is an actual bona fide purchaser for value or is an actual secured party whose security interest is perfected in accordance with applicable state law.

Pursuant to its regulations, the Federal Deposit Insurance Corporation (FDIC) has recognized the priority of an FHLBank's security interest under the FHLBank Act, and the right of an FHLBank to require delivery of collateral held by the FDIC as receiver for a failed depository institution.

The Bank offers standard and customized advances to fit a variety of member needs. Generally, the Bank offers maturities as described below, but longer maturities are available subject to a member's financial condition and available funding. The Bank's advances include, among other products, the following:

Daily Rate Credit Advance (DRC Advance). The DRC Advance provides short-term funding with rate resets on a daily basis, similar to federal funds lines. The DRC Advance is available generally from one day to 12 months.

•

Adjustable Rate Credit Advance (ARC Advance). The ARC Advance is a long-term advance available for a term generally of up to 10 years with rate resets at specified intervals.

•

Float-to-Fixed Advance. This advance is an advance that floats to London Interbank Offered Rate (LIBOR) and changes to a predetermined fixed rate on a predetermined date prior to maturity. The Bank offers this product with a maturity generally of up to 15 years.

Fixed rate advances. Fixed rate advances include:

•

Fixed Rate Credit Advance (FRC Advance). The FRC Advance offers fixed-rate funds with principal due at maturity generally from one month to 20 years.

•

Callable Advance.The callable advance is a fixed-rate advance with a fixed maturity and the option for the borrower to prepay the advance on an option exercise date(s) before maturity without a fee. The options can be Bermudan (periodically during the life of the advance) or European (one-time). The Bank offers this product with a maturity generally of up to 10 years with options generally from three months to 10 years.

•

Expander Advance. The expander advance is a fixed-rate advance with a fixed maturity and an option by the borrower to increase the amount of the advance in the future at a predetermined interest rate. The option may be Bermudan or European. The Bank has established internal limits on the amount of such options that may be sold to mature in any given quarter. The Bank offers this product with a maturity generally of two years to 20 years with an option exercise date that can be set generally from one month to 10 years.

•

Principal Reducing Advance. The principal reducing advance is a fixed-rate advance with a final maturity generally up to 20 years and predetermined principal reductions on specific dates. The reduction schedule is predetermined by the borrower and may be scheduled on a monthly, quarterly, semi-annual, or annual basis. Amortization options include equal payments or structures similar to a mortgage.

Hybrid advances.The hybrid advance is a fixed- or variable-rate advance that allows the inclusion of interest-rate caps and/or floors. The Bank offers this product with a maturity generally of up to 10 years with options generally from three months to 10 years.

Convertible advances. In a convertible advance, the Bank purchases an option from the borrower that allows the Bank to modify the interest rate on the advance from fixed to variable on certain specified dates. The Bank's option can be Bermudan or European. The Bank offers this product with a maturity generally of up to 15 years with options generally from three months to 15 years.

Forward starting advances. With the forward starting advance, the borrower may enter into the terms of any structured advance, including the fixed-rate Hybrid, ARC Advance, Expander Advance, or Float-to-Fixed Advance, with a future

settlement date. Interest accrues beginning on the settlement date. A termination fee applies if the borrower voluntarily terminates the advance prior to the settlement date.

The following table sets forth the par value of outstanding advances by product characteristics (dollars in millions). See Note 10—Advances to the Banks 2014 audited financial statements for further information on the distinction between par value and carrying value of outstanding advances.

The Bank establishes interest rates on advances using the Bank's cost of funds on COs and the interest-rate swap market. The Bank establishes an interest rate applicable to each type of advance each day and then adjusts those rates during the day to reflect changes in the cost of funds and interest rates.

The Bank includes prepayment fee provisions in most advance transactions. With respect to callable advances, prepayment fees apply to prepayments on dates other than option exercise dates. As required by Finance Agency regulations, the prepayment fee is intended to make the Bank financially indifferent to a borrower's decision to prepay an advance before maturity or, with respect to a callable advance, on a date other than an option exercise date.

The following table presents information on the Bank's 10 largest borrowers of advances (dollars in millions):

As of December 31, 2014

Institution

City, State

Advances

Par Value

Percent of Total Advances

Weighted-average Interest

Rate

(%) (1)

Bank of America, National Association

Charlotte, NC

$

17,512

17.89

0.24

Capital One, National Association

McLean, VA

17,265

17.64

0.27

Navy Federal Credit Union

Vienna, VA

9,942

10.16

2.40

SunTrust Bank

Atlanta, GA

8,010

8.18

0.81

Branch Banking and Trust Company

Winston Salem, NC

6,552

6.69

3.37

EverBank

Jacksonville, FL

4,004

4.09

1.16

BankUnited, National Association

Miami Lakes, FL

3,310

3.38

0.39

Compass Bank

Birmingham, AL

2,982

3.05

1.48

Pentagon Federal Credit Union

Alexandria, VA

1,846

1.89

2.84

Synovus

Columbus, GA

1,375

1.40

0.54

Subtotal (10 largest borrowers)

72,798

74.37

1.07

Subtotal (all other borrowers)

25,084

25.63

1.58

Total par value

$

97,882

100.00

1.20

____________

(1) The average interest rate of the member's advance portfolio weighted by each advance's outstanding balance.

A description of the Bank's credit risk management and collateral valuation methodology as it relates to its advance activity is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Advances.

Standby Letters of Credit

The Bank provides members with irrevocable standby letters of credit to support certain obligations of the members to third parties. Members may use standby letters of credit for residential housing finance and community lending or for liquidity and asset-liability management. In particular, members often use standby letters of credit as collateral for deposits from public sector entities. Standby letters of credit are generally available for nonrenewable terms up to five years or for a one-year term renewable annually with a final expiration date up to ten years after issuance. The Bank requires members to fully collateralize the face amount of any letter of credit issued by the Bank during the term of the letter of credit, and the Bank charges the member an annual fee based on the face amount of the letter of credit. If the Bank is required to make payment for a beneficiary's draw, these amounts must be reimbursed by the member immediately or, subject to the Bank's discretion, may be converted into an advance to the member. The Bank's underwriting and collateral requirements for standby letters of credit are the same as the underwriting and collateral requirements for advances. Letters of credit are not subject to activity-based capital stock purchase requirements. The Bank has never experienced a credit loss related to a standby letter of credit reimbursement obligation. Unlike advances, standby letters of credit are accounted for as financial guarantees because a standby letter of credit may expire in accordance with its terms without ever being drawn upon by the beneficiary. The Bank had $30.9 billion and $27.8 billion of outstanding standby letters of credit as of December 31, 2014 and 2013, respectively.

Advances and Standby Letters of Credit Combined

The following table presents information on the Bank's 10 largest borrowers of advances and standby letters of credit combined (dollars in millions):

As of December 31, 2014

Institution

City, State

Advances Par Value and Standby Letters of Credit Balance

Percent of Total Advances Par Value and Standby Letters of Credit

Bank of America, National Association

Charlotte, NC

$

30,860

23.96

Capital One, National Association

McLean, VA

17,721

13.76

SunTrust Bank

Atlanta, GA

15,895

12.34

Navy Federal Credit Union

Vienna, VA

9,942

7.72

Compass Bank

Birmingham, AL

7,529

5.84

Branch Banking and Trust Company

Winston Salem, NC

6,552

5.09

EverBank

Jacksonville, FL

4,104

3.19

BankUnited, National Association

Miami Lakes, FL

3,711

2.88

Regions Bank

Birmingham, AL

2,138

1.66

Pentagon Federal Credit Union

Alexandria, VA

1,846

1.43

Subtotal (10 largest borrowers)

100,298

77.87

Subtotal (all other borrowers)

28,512

22.13

Total advances par value and standby letters of credit

$

128,810

100.00

Community Investment Services

Each FHLBank contributes 10 percent of its annual regulatory income to its Affordable Housing Program (AHP), or such additional prorated sums as may be required to assure that the aggregate annual contribution of the FHLBanks is not less than $100 million. Regulatory income is defined as GAAP income before interest expense related to mandatorily redeemable capital stock and the assessment for AHP discussed under the heading Taxation/Assessments below.

AHP provides direct subsidy funds or subsidized advances to members to support the financing of rental and for-sale housing for very low-, low-, and moderate-income individuals and families. The Bank offers a Competitive AHP, a Set-aside AHP, and a discounted advance program that supports projects that provide affordable housing and economic development benefiting those individuals and families. A description of each program is as follows:

•

the Competitive AHP is offered annually through a competitive application process and provides funds for either rental or ownership projects submitted through member financial institutions;

•

the Set-aside AHP currently consists of eight distinct products: First-time Homebuyer, Community Partners, Foreclosure Recovery, Veterans Purchase, Returning Veterans Purchase, Veterans Rehabilitation, Returning Veterans Rehabilitation, and Structured Partnership Product. The Set-aside AHP products are available on a first-come, first-served basis and provide funds through member financial institutions to be used for down payments, closing costs, and other costs associated with the purchase, purchase/rehabilitation, or rehabilitation of homes for families at or below 80 percent of the area median income; and

•

the discounted advance program consists of the Community Investment Program and the Economic Development Program, each of which provides the Bank's members with access to low-cost funding to create affordable rental and homeownership opportunities and to engage in commercial and economic development activities that benefit low- and moderate-income individuals and neighborhoods.

For the years ended December 31, 2014, 2013, and 2012, AHP assessments were $30 million, $37 million, and $30 million, respectively.

Cash Management and Other Services

The Bank provides a variety of services to help members meet day-to-day cash management needs. These services include cash management services that support member advance activity, such as daily investment accounts, automated clearing house (ACH) transactions, and custodial mortgage accounts. In addition to cash management services, the Bank provides other noncredit services, including wire transfer services and safekeeping services. These cash management, wire transfer, and safekeeping services do not generate material amounts of income and are performed primarily as ancillary services for the Bank's members.

The Bank also acts as an intermediary to meet the derivatives needs of its smaller members that have limited or no access to the capital markets. This service assists members with asset-liability management by giving them indirect access to the capital markets. These intermediary transactions involve the Bank entering into a derivative with a member and then entering into a mirror-image derivative with one of the Bank's approved counterparties. The derivatives entered into by the Bank as a result of its intermediary activities do not qualify for hedge accounting treatment and are separately marked to fair value through earnings. The Bank attempts to earn income from this service sufficient to cover its operating expenses through the minor difference in rates on these mirror-image derivatives. The net result of the accounting for these derivatives is not material to the operating results of the Bank. The Bank may require both the member and the counterparty to post collateral for any market value exposure that may exist during the life of the transaction.

Mortgage Loan Purchase Programs

The Bank’s mortgage loan purchase programs provide members an alternative to holding mortgage loans in portfolio or selling them into the secondary market. Prior to 2008, the Bank purchased loans directly from member participating financial institutions (PFIs) through the Mortgage Partnership Finance® Program (MPF® Program), a program developed by FHLBank Chicago, and the Mortgage Purchase Program (MPP), a program separately established by the Bank. The Bank ceased directly purchasing new mortgage assets under these mortgage programs in 2008. However, the Bank continues to support its existing MPP and MPF Program mortgage loan portfolios. In 2014, the Bank renewed its participation in the MPF Program. The Bank now offers an MPF Program product, MPF Xtra, through which the Bank facilitates third parties' purchases of PFI loans rather than holding such loans as Bank assets.

MPF Program

The Bank has from time to time offered various products to members through the MPF Program. FHLBank Chicago, as the MPF provider, is responsible for providing transaction processing services, as well as developing and maintaining the underwriting criteria and program servicing guide. The Bank pays FHLBank Chicago a fee for providing these services. Conventional loans purchased from PFIs under the MPFProgram are subject to varying levels of loss allocation and credit

enhancement structures. Federal Housing Administration (FHA)-insured and Department of Veterans Affairs (VA)-guaranteed loans are not subject to the credit enhancement obligations applicable to conventional loans under the MPF Program. The PFI may retain the right and responsibility for servicing the loans or sell the servicing rights, and the PFI may be required to repurchase a loan in the event of a breach of eligibility requirement or other warranty.

Traditional MPF Products. The Bank maintains a portfolio of mortgage loans that were historically purchased directly from PFIs and are recorded on the balance sheet. As of December 31, 2014, three of the Bank's PFIs under the traditional MPF products, Branch Banking and Trust Company, SunTrust Bank, and Capital One, National Association, were among the Bank's top 10 borrowers.

MPF Xtra. In 2014, the Bank began to offer the MPF Xtra product to members. Under the MPF Xtra product, FHLBank Chicago will purchase residential conforming fixed-rate mortgage loans from the Bank’s PFIs and concurrently sell these loans to Fannie Mae. The Bank will receive a counterparty fee from FHLBank Chicago for each PFI loan sold to FHLBank Chicago through the MPF Xtra product in exchange for the Bank's role in facilitating the sale. The MPF Xtra loans are passed through to Fannie Mae as a third-party investor and do not become Bank assets.

The Bank’s MPP is independent of other FHLBanks. Therefore, the Bank has greater control over pricing, quality of customer service, relationships with any third-party service providers, and program changes. Certain benefits of greater Bank control include the Bank's ability to control operating costs and to manage its regulatory relationship directly with the Finance Agency.

As of December 31, 2014, there were no MPP PFIs that were among the Bank's top 10 borrowers.

The MPF Program and MPP are authorized under applicable regulations. Regulatory interpretive guidance provides that an FHLBank may sell loans acquired through its mortgage loan purchase programs so long as it also sells the related credit enhancement obligation. The Bank currently is not selling loans it has acquired through these mortgage loan purchase programs. The MPF Program and MPP mortgage loan portfolios will eventually be reduced to zero in the ordinary course of the maturities and prepayments of the assets. The contractual maturity dates of some of the purchased loans extend out to 2038.

Descriptions of the MPF Program and MPP underwriting and eligibility standards and credit enhancement structures are contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Mortgage Loan Programs.

Investments

The Bank maintains a portfolio of short- and long-term investments for liquidity purposes, to provide for the availability of funds to meet member credit needs, and to provide additional earnings for the Bank. The Bank's short-term investments consist of interest-bearing deposits, overnight and term federal funds sold and securities purchased under agreements to resell. The Bank's long-term investments consist of mortgage-backed securities (MBS) issued by GSEs or private label securities that, at purchase, carried the highest rating from Moody's Investors Service (Moody's) or Standard and Poor's Ratings Services (S&P), securities issued by the U.S. government or U.S. government agencies, state and local housing agency obligations, and COs issued by another FHLBank. The Bank ceased purchasing private label MBS on January 31, 2008. The long-term investment portfolio generally provides the Bank with higher returns than those available in short-term investments. As of December 31, 2014, 64.7 percent of the Bank's investments were in U.S. agency and GSE securities as discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments. Investments generated 66.2 percent, 62.8 percent, and 61.9 percent of total interest income for the years ended December 31, 2014, 2013 and 2012, respectively.

The Bank's MBS investment practice is to purchase MBS from a group of Bank-approved dealers, which may include “primary dealers.” Primary dealers are banks and securities brokerages that trade in U.S. government securities with the Federal Reserve System. The Bank does not purchase MBS from its members, except in the case in which a member or its affiliate is on the Bank's list of approved dealers. The Bank bases its investment decisions in all cases on the relative rates of return of competing investments and does not consider whether an MBS is being purchased from or issued by a member or an affiliate of a member. The MBS balance as of December 31, 2014 and 2013 included MBS with a carrying value of $1.7 billion and $2.1 billion, respectively, issued by one of the Bank's members and its affiliates with dealer relationships. See Note 6—Available-for-sale

Securities and Note 7—Held-to-maturity Securities to the Bank's 2014 audited financial statements for a tabular presentation of the available-for-sale and held-to-maturity securities issued by members or affiliates of members.

Finance Agency regulations prohibit the Bank from investing in certain types of securities. These restrictions are discussed in more detail in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Investments.

The Finance Agency regulations prohibit an FHLBank from purchasing MBS and asset-backed securities if its investment in such securities exceeds 300 percent of the FHLBank’s previous month-end regulatory capital on the day it purchases the securities. For discussion regarding the Bank's compliance with this regulatory requirement, refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments.

From time to time, the Bank purchases COs issued by other FHLBanks through third-party dealers as long-term investments, consistent with the Bank's investment strategy and Finance Agency regulations and guidelines. The terms of these purchased COs generally are similar to the COs that are issued by the Bank. The Bank's purchase of these investments is funded by a pool of liabilities and capital of the Bank and is not funded by specific or “matched” COs issued by the Bank. In making such purchases, the Bank considers the same factors that it considers in connection with the Bank's purchase of long-term debt issued by other GSEs, including the maturity, rate of return and liquid nature of the instrument. The Bank has not purchased any additional COs issued by other FHLBanks since 2002. As of December 31, 2014 and 2013, the Bank held one inverse variable-rate CO bond of which the FHLBank Chicago was the primary obligor. The carrying value of this CO bond as of December 31, 2014 and 2013 was $60 million and $65 million, respectively.

The Bank is subject to credit and market risk on its investments. For discussion as to how the Bank manages these risks, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Investments.

Funding Sources

Consolidated Obligations

Consolidated obligations, or COs, consisting of bonds and discount notes, are the joint and several obligations of the FHLBanks, backed only by the financial resources of the FHLBanks. COs are not obligations of the U.S. government, and the United States does not guarantee the COs. The Office of Finance has responsibility for facilitating and executing the issuance of COs for all the FHLBanks. It also services all outstanding debt. The Bank is primarily liable for its portion of COs (i.e., those issued on its behalf); however, the Bank is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on COs of all the FHLBanks. If the principal or interest on any CO issued on behalf of the Bank is not paid in full when due, the Bank may not pay any extraordinary expenses or pay dividends to, or redeem or repurchase shares of stock from, any member of the Bank. The Finance Agency may at any time require any FHLBank to make principal or interest payments due on any CO, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation.

To the extent that an FHLBank makes any payment on a CO on behalf of another FHLBank, the paying FHLBank is entitled to reimbursement from the noncomplying FHLBank. However, if the Finance Agency determines that the noncomplying FHLBank is unable to satisfy its obligations, the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank's participation in all COs outstanding or on any other basis the Finance Agency may determine.

Finance Agency regulations also state that the Bank must maintain the following types of assets free from any lien or pledge in an aggregate amount at least equal to the amount of the Bank's portion of the COs outstanding, provided that any assets that are subject to a lien or pledge for the benefit of the holders of any issue of COs shall be treated as if they were assets free from any lien or pledge for purposes of this negative pledge requirement:

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cash;

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obligations of, or fully guaranteed by, the United States;

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secured advances;

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mortgages that have any guaranty, insurance, or commitment from the United States or any agency of the United States; and

investments described in Section 16(a) of the FHLBank Act which, among other items, includes securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located.

The Bank was in compliance with this Finance Agency regulation as of December 31, 2014 and 2013.

Consolidated obligations are issued with either fixed-rate coupon payment terms or variable-rate coupon payment terms that may use a variety of indices.

Consolidated Obligation Bonds. Consolidated obligation bonds satisfy longer-term funding requirements. Typically, the maturity of these securities ranges from one year to 10 years, but the maturity is not subject to any statutory or regulatory limit. Consolidated obligation bonds can be issued and distributed through negotiated or competitively bid transactions with approved underwriters or selling group members. The FHLBanks also use the TAP issue program for fixed-rate, noncallable bonds. Under this program, the FHLBanks offer debt obligations at specific maturities that may be reopened daily, generally during a three-month period through competitive auctions. The goal of the TAP program is to aggregate frequent smaller issues into a larger bond issue that may have greater market liquidity.

Consolidated Obligation Discount Notes. Through the Office of Finance, the FHLBanks also issue consolidated obligation discount notes to provide short-term funds for advances to members, for the Bank'sshort-term investments, and for the Bank'svariable-rate and convertible advance programs. These securities have maturities up to 366 days and are offered daily through a consolidated obligation discount-note selling group. Discount notes are issued at a discount and mature at par.

Certification and Reporting Obligations. Under Finance Agency regulations, before the end of each calendar quarter and before paying any dividends for that quarter, the president of the Bank must certify to the Finance Agency that, based upon known current facts and financial information, the Bank will remain in compliance with applicable liquidity requirements and will remain capable of making full and timely payment of all current obligations (which includes the Bank's obligation to pay principal and interest on COs issued on its behalf through the Office of Finance) coming due during the next quarter. The Bank is required to provide notice to the Finance Agency upon the occurrence of any of the following:

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the Bank is unable to provide the required certification;

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the Bank projects at any time that it will fail to comply with its liquidity requirements or will be unable to meet all of its current obligations due during the quarter;

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the Bank actually fails to comply with its liquidity requirements or to meet all of its current obligations due during the quarter; or

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the Bank negotiates to enter or enters into an agreement with one or more other FHLBanks to obtain financial assistance to meet its current obligations due during the quarter.

The Bank must file a CO payment plan for Finance Agency approval upon the occurrence of any of the following:

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the Bank becomes a noncomplying FHLBank as a result of failing to provide a required certification related to liquidity requirements and ability to meet all current obligations;

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the Bank becomes a noncomplying FHLBank as a result of being required to provide notice to the Finance Agency of certain matters related to liquidity requirements or inability to meet current obligations; or

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the Finance Agency determines that the Bank will cease to be in compliance with its liquidity requirements or will lack the capacity to meet all of its current obligations due during the quarter.

Regulations permit a noncompliant FHLBank to continue to incur and pay normal operating expenses in the regular course of business. However, a noncompliant FHLBank may not incur or pay any extraordinary expenses, declare or pay dividends, or redeem any capital stock until such time as the Finance Agency has approved the FHLBank's CO payment plan or inter-FHLBank assistance agreement or has ordered another remedy, and the noncompliant FHLBank has paid all its direct obligations.

The Bank, working through the Office of Finance, is able to customize COs to meet investor demands. Customized features can include different indices and embedded derivatives. The Bank offsets these customized features predominately by derivatives to reduce the market risk associated with the COs.

Deposits

The FHLBank Act allows the Bank to accept deposits from its members, any institution for which it is providing correspondent services, other FHLBanks, or other governmental instrumentalities. Deposits provide some of the Bank's funding resources while also giving members a low-risk earning asset that satisfies their regulatory liquidity requirements. As of December 31, 2014 and 2013, the Bank had demand and overnight deposits of $1.1 billion and $1.8 billion, respectively.

To support its member deposits, the FHLBank Act requires the Bank to have as a reserve an amount equal to or greater than the current deposits received from members. These reserves are required to be invested in obligations of the United States, deposits in eligible banks or trust companies or advances with maturities not exceeding five years. As of December 31, 2014 and 2013, the Bank had excess deposit reserves of $94.6 billion and $81.8 billion, respectively.

Capital and Capital Rules

The Bank must comply with regulatory requirements for total capital, leverage capital, and risk-based capital. To satisfy these capital requirements, the Bank maintains a capital plan, as last amended by the board of directors on May 13, 2011. Each member's minimum stock requirement is an amount equal to the sum of a “membership” stock component and an “activity-based” stock component under the plan. The FHLBank Act and applicable regulations require that the minimum stock requirement for members must be sufficient to enable the Bank to meet its minimum leverage and risk-based capital requirements. If necessary, the Bank may adjust the minimum stock requirement from time to time within the ranges established in the capital plan. Each member is required to comply promptly with any adjustment to the minimum stock requirement.

As of December 31, 2014, the membership stock requirement was 0.09 percent (nine basis points) of the member's total assets, subject to a cap of $15 million.

As of December 31, 2014, the activity-based stock requirement was the sum of the following:

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4.50 percent of the member's outstanding par value of advances; and

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8.00 percent of any outstanding targeted debt/equity investment (such as multifamily residential mortgage loan assets) sold by the member to the Bank on or after December 17, 2004.

In addition, the activity-based stock requirement may include a percentage of any outstanding balance of acquired member assets (such as single-family residential mortgage loan assets), although this percentage was set at zero as of December 31, 2014. As of December 31, 2014, the Bank did not have any multifamily residential mortgage loan assets purchased from members or other targeted debt/equity investments outstanding; therefore, the 8.00 percent activity-based stock requirement was inapplicable.

In January 2015, the Bank's board of directors approved a decrease, effective March 20, 2015, in the factor used to calculate a member's activity-based stock requirement from 4.50 percent to 4.25 percent of the member's outstanding par value of advances. The membership stock requirement will remain at 0.09 percent of the member's total assets, subject to a cap of $15 million.

Although applicable regulations allow the Bank to issue Class A stock or Class B stock, or both, to its members, the Bank's capital plan allows it to issue only Class B stock.

The Bank has established a capital management plan to help preserve the value of the members' investment in the Bank and reasonably mitigate the effect on capital of unanticipated operating and accounting events. For additional information regarding the Bank's capital and capital requirements, as well as information regarding the Bank's retained earnings and dividends, refer to Item 5, Market for Registrant's Common Equity—Related Stockholder Matters and Issuer Purchases of Equity Securities; Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Capital; and Note 15—Capital and Mandatorily Redeemable Capital Stock to the Bank's 2014 audited financial statements.

Finance Agency regulations and the Bank's Risk Management Policy (RMP) establish guidelines for derivatives. These policies and regulations prohibit trading in or the speculative use of these instruments and limit permissible credit risk arising from these instruments. The Bank enters into derivatives to manage the interest-rate risk exposures inherent in otherwise unhedged assets and funding positions, and to achieve the Bank's risk management objectives. These derivatives consist of interest-rate swaps (including callable swaps and putable swaps), swaptions, interest-rate cap and floor agreements, and forward contracts. Generally, the Bank uses derivatives in its overall interest-rate risk management to accomplish one or more of the following objectives:

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preserve a favorable interest-rate spread between the yield of an asset (e.g., an advance) and the cost of the related liability (e.g., the consolidated obligation bond used to fund the advance) by converting both fixed-rate instruments to a variable rate using interest-rate swaps;

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reduce funding costs by combining a derivative with a consolidated obligation because the cost of a combined funding structure can be lower than the cost of a comparable consolidated obligation bond;

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reduce the interest-rate sensitivity and repricing gaps of assets and liabilities;

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mitigate the adverse earnings effects of the shortening or extension of certain assets (e.g., mortgage assets);

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protect the value of existing asset or liability positions;

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manage embedded options in assets and liabilities; and

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achieve overall asset/liability management objectives.

The total notional amount of the Bank's outstanding derivatives was $125.9 billion and $101.7 billion as of December 31, 2014 and 2013, respectively. The contractual or notional amount of a derivative is not a measure of the amount of credit risk from that transaction. Rather, the notional amount serves as a basis for calculating periodic interest payments or cash flows.

The Bank may enter into derivatives concurrently with the issuance of COs with embedded options. When issuing bonds, the Bank generally simultaneously enters into derivatives to, in effect, convert fixed-rate liabilities into variable-rate liabilities. The continued attractiveness of such debt depends on price relationships in both the bond market and derivatives markets. If conditions in these markets change, the Bank may alter the types or terms of the bonds issued. Similarly, the Bank may enter into derivatives in conjunction with the origination of advances with embedded options. Issuing fixed-rate advances while simultaneously entering into derivatives in effect converts fixed-rate advances into variable-rate earning assets.

The Bank is subject to credit risk in all derivatives due to potential nonperformance by the derivative counterparty. For further discussion as to how the Bank manages its credit risk and market risk on its derivatives, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation—Risk Management.

Competition

Advances. A number of factors affect demand for the Bank's advances, including, but not limited to, the availability and cost of other sources of liquidity for the Bank's members, such as demand deposits, brokered deposits and the repurchase market. The Bank individually competes with other suppliers of secured and unsecured wholesale funding. Such other suppliers may include investment banks, commercial banks, and in certain circumstances, other FHLBanks. Smaller members may have access to alternative funding sources through sales of securities under agreements to repurchase, while larger members may have access to all the alternatives listed above. Larger members also may have independent access to the national and global credit markets. The availability of alternative funding sources to members can significantly influence the demand for the Bank's advances and can vary as a result of a number of factors, including market conditions, members' creditworthiness, and availability of collateral. Members continue to experience significant levels of liquidity due to higher FDIC deposit insurance limits which in 2010 were permanently increased to $250,000 per depositor, members' ability under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) to pay interest on and thus attract commercial demand deposit accounts, and the FDIC assessment system, revised in 2011, that eliminates an adjustment to the base assessment rate paid for secured liabilities, including FHLBank advances. To the extent that these assessment changes result in increased assessments and thus indirectly increase the cost of advances for some members, it may negatively impact their demand for advances.

Debt Issuance. The Bank competes with Fannie Mae, Freddie Mac, and other GSEs, as well as corporate, sovereign, and supranational entities for funds raised through the issuance of unsecured debt in the national and global debt markets. Increases in the supply of competing debt products may, in the absence of increases in demand, result in higher debt costs or lesser amounts of debt issued at the same cost than otherwise would be the case. In addition, the availability and cost of funds raised through the issuance of certain types of unsecured debt may be affected adversely by regulatory initiatives that tend to reduce investments by certain depository institutions in unsecured debt with greater price volatility or interest-rate sensitivity than

fixed-rate, fixed-maturity instruments of the same maturity. Further, a perceived or actual higher level of government support for other GSEs may increase demand for their debt securities relative to similar FHLBank securities.

Interest-rate Exchange Agreements. The sale of callable debt and the simultaneous execution of callable interest-rate swaps that mirror the debt have been important sources of competitive funding for the Bank. As such, the availability of markets for callable debt and interest-rate swaps may be an important determinant of the Bank's relative cost of funds. There is considerable competition among high credit quality issuers in the markets for these instruments.

Regulatory Oversight, Audits, and Examinations

The Finance Agency supervises and regulates the FHLBanks. The Finance Agency is responsible for ensuring that (1) the FHLBanks operate in a safe and sound manner, including maintenance of adequate capital and internal controls; (2) the operations and activities of the FHLBanks foster liquid, efficient, competitive and resilient national housing finance markets; (3) the FHLBanks comply with applicable laws and regulations; and (4) the FHLBanks carry out their housing finance mission through authorized activities that are consistent with the public interest. In this capacity, the Finance Agency issues regulations and policies that govern, among other things, the permissible activities, powers, investments, risk-management practices, and capital requirements of the FHLBanks, and the authorities and duties of FHLBank directors. The Finance Agency conducts annual, on-site examinations of the Bank as well as periodic off-site reviews. In addition, the Bank must submit to the Finance Agency monthly financial information on the condition and results of operations of the Bank.

In 2006, in accordance with the Finance Board's regulation, the Bank registered its Class B stock with the SEC under Section 12(g)(1) of the Securities Exchange Act of 1934, as amended (Exchange Act). The Housing Act codified the regulatory requirement that each FHLBank register a class of its common stock under Section 12(g) of the Exchange Act. As a result of this registration, the Bank is required to comply with the disclosure and reporting requirements of the Exchange Act and to file with the SEC annual, quarterly, and current reports, as well as meet other SEC requirements, subject to certain exemptive relief obtained from the SEC and under the Housing Act.

The Government Corporation Control Act provides that, before a government corporation (which includes each of the FHLBanks) issues and offers obligations to the public, the Secretary of the Treasury shall prescribe (1) the form, denomination, maturity, interest rate, and conditions of the obligations; (2) the time and manner in which issued; and (3) the selling price. Under the FHLBank Act, the Secretary of the Treasury has the authority, at his discretion, to purchase COs up to an aggregate principal amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977. The U.S. Department of the Treasury (Treasury) receives the Finance Agency's annual report to Congress, weekly reports reflecting securities transactions of the FHLBanks, and other reports reflecting the operations of the FHLBanks.

The Comptroller General has authority under the FHLBank Act to audit or examine the Finance Agency and the Bank and to decide the extent to which they fairly and effectively fulfill the purposes of the FHLBank Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of the financial statements conducted by an independent registered public accounting firm. If the Comptroller General conducts such a review, he must report the results and provide his recommendations to Congress, the Office of Management and Budget, and the FHLBank in question. The Comptroller General also may conduct his own audit of any financial statements of the Bank.

The Bank has an internal audit department, the Bank's board of directors has an audit committee, and an independent registered public accounting firm audits the annual financial statements of the Bank. The independent registered public accounting firm conducts these audits following the standards of the Public Company Accounting Oversight Board (United States) and Government Auditing Standards issued by the Comptroller General. The Finance Agency receives the Bank's Report and audited financial statements. The Bank must submit annual management reports to Congress, the President of the United States, the Office of Management and Budget, and the Comptroller General. These reports include audited financial statements, a statement of internal accounting and administrative control systems, and the report of the independent registered public accounting firm on the financial statements.

Our website is located at www.fhlbatl.com, and our investor relations website is located at http://corp.fhlbatl.com/who-we-are/investor-relations/. We post our annual reports on Form 10-K on our investor relations website as soon as reasonably practicable after we file them with the SEC, and we also provide a link to the page on the SEC website at www.sec.gov that has all of our SEC filings, including our annual reports, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, as well as any amendments. These reports may also be read and copied at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Further information about the operation of the Public Reference Room may be obtained at 1-800-SEC-0330. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, dividend announcements, press and earnings releases as part of our latest news website at http://corp.fhlbatl.com/who-we-are/news/. The content of our websites is not incorporated by reference into this Report or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

Personnel

As of December 31, 2014, the Bank employed 333 full-time and 6 part-time employees.

Taxation/Assessments

The Bank is exempt from ordinary federal, state, and local taxation except for real property tax. Each year the Bank must set aside for its AHP 10 percent of its income subject to assessment (net income before assessments, plus interest expense related to mandatorily redeemable capital stock), or such prorated sums as may be required to assure that the aggregate contribution of the FHLBanks is not less than $100 million. If an FHLBank experienced a net loss for a full year, the FHLBank would have no obligation to the AHP for that year, since each FHLBank's required annual AHP contribution is limited to its annual income subject to assessment. AHP assessments for the Bank were $30 million, $37 million, and $30 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Item 1A.Risk Factors.

The following discussion summarizes some of the more important risks that the Bank faces. This discussion is not exhaustive, and there may be other risks that the Bank faces, which are not described below. These risks should be read in conjunction with the other information included in this Report, including, without limitation, in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial statements and notes, and “Special Cautionary Notice Regarding Forward-looking Statements.” The risks described below, if realized, could negatively affect the Bank's business operations, financial condition, and future results of operations and, among other things, could result in the Bank's inability to pay dividends on its capital stock.

The Bank is subject to a complex body of laws and regulations, which could change in a manner detrimental to the Bank's operations.

The FHLBanks are GSEs, organized under the authority of the FHLBank Act, and governed by federal laws and regulations as adopted and applied by the Finance Agency. From time to time, Congress has amended the FHLBank Act in ways that have affected the rights and obligations of the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency could have a negative effect on the Bank's ability to conduct business or on the cost of doing business.

Changes in regulatory requirements could result in, among other things, an increase in the FHLBanks' cost of funding and regulatory compliance, a change in membership or permissible business activities, or a decrease in the size, scope, or nature of the FHLBanks' lending activities, which could affect the Bank's financial condition and results of operations.

The statutory and regulatory framework under which most financial institutions, including the Bank and its members, operate continues to change as a result of the enactment of the Dodd-Frank Act and subsequent implementing regulations. In addition, certain regulations affecting our members could impact the extent to which they can engage in business with the Bank. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Legislative and Regulatory Developments for a discussion of recent legislative and regulatory activity that could affect the Bank.

The Bank is jointly and severally liable for payment of principal and interest on the COs issued by the other FHLBanks.

Each of the FHLBanks relies upon the issuance of COs as a primary source of funds. COs are the joint and several obligations of all of the FHLBanks, backed only by the financial resources of the FHLBanks. Accordingly, the Bank is jointly and severally liable with the other FHLBanks for the COs issued by the FHLBanks through the Office of Finance, regardless of whether the Bank receives all or any portion of the proceeds from any particular issuance of COs.

The Finance Agency by regulation may require any FHLBank to make principal or interest payments due on any CO at any time, whether or not the FHLBank that was the primary obligor has defaulted on the payment of that obligation. The Finance Agency may allocate the liability among one or more FHLBanks on a pro rata basis or on any other basis the Finance Agency may determine. Accordingly, the Bank could incur significant liability beyond its primary obligation under COs due to the failure of other FHLBanks to meet their obligations, which could negatively affect the Bank's financial condition and results of operations.

The Bank's funding depends upon its ability to regularly access the capital markets.

The Bank seeks to be in a position to meet its members' credit and liquidity needs and pay its obligations without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs. The Bank's primary source of funds is the sale of COs in the capital markets, including the short-term discount note market. The Bank's ability to obtain funds through the sale of COs depends in part on prevailing conditions in the capital markets (including investor demand), such as the effects of any reduced liquidity in financial markets, which are beyond the Bank's control.

Changes in the Bank's credit ratings may adversely affect the Bank's ability to issue COs on acceptable terms, and such changes may be outside the Bank's control due to changes in the U.S. sovereign ratings.

The Bank is rated Aaa with a stable outlook by Moody's and AA+ with a stable outlook by S&P. In addition, the COs of the FHLBanks are rated Aaa with a stable outlook/P-1 by Moody's and AA+ with a stable outlook/A-1+ by S&P. Historically, the Bank and the FHLBanks' COs enjoyed the highest ratings from Moody's and S&P; however, the credit rating agencies view these ratings as constrained by the sovereign credit of the U.S., which is beyond the Bank's control, and in the third quarter of 2011, the credit rating agencies revised their ratings for the individual FHLBanks and the COs concurrently with their downgrades of the U.S. credit rating. In 2013, the credit rating agencies revised their outlook levels to stable. These ratings are subject to further revision or withdrawal at any time by the rating agencies; therefore, the Bank may not be able to maintain these credit ratings. Further negative ratings actions or negative guidance, as a consequence of U.S. debt levels or the U.S. fiscal budget process, may adversely affect the Bank's cost of funds and ability to issue COs on acceptable terms, trigger additional collateral requirements under the Bank's derivative contracts, and reduce the attractiveness of the Bank's standby letters of credit. This could have a negative effect on the Bank's financial condition and results of operations, including the Bank's ability to make advances on acceptable terms, pay dividends, or redeem or repurchase capital stock.

Competition for advances, and refinancing risk on short-term advances, could have an adverse effect on earnings.

Advances represent the Bank's primary product offering. For the year ended December 31, 2014, advances represented 72.0 percent of the Bank's total assets. The Bank competes with other suppliers of wholesale funding, including investment banks, commercial banks, and in certain circumstances, other FHLBanks, which provide secured and unsecured loans to the Bank's members. From time to time, these alternative funding sources may offer more favorable terms on their loans than the Bank does on its advances. During 2014, the Bank's members continued to experience high deposit levels, which reduces member demand for advances. Any change made by the Bank in the pricing of its advances in an effort to effectively compete with these competitive funding sources may decrease the Bank's profitability on advances, which could have a material adverse effect on the Bank's financial condition and results of operations, including dividend yields to members.

The prolonged low interest rate environment has resulted in an increased concentration of short-term advances. For the year ended December 31, 2014, advances due in one year or less comprised 58.9 percent of the Bank's total advances. If members do not extend or renew these short-term advances as they come due, the Bank may experience a significant reduction in advances, which could have a material adverse effect on the Bank's financial condition and results of operations.

The Bank is subject to customer concentration risk as a result of the Bank's reliance on a relatively small number of member institutions for a large portion of the Bank's total advances and resulting interest income. The Bank's largest borrowers as of December 31, 2014 were Bank of America, National Association, which accounted for $17.5 billion, or 17.9 percent, and Capital One, National Association, which accounted for $17.3 billion, or 17.6 percent, of the Bank's total advances then outstanding. As of December 31, 2013, the Bank's largest borrower, Bank of America, National Association, accounted for $17.3 billion, or 19.6 percent, of the Bank's total advances then outstanding. In addition, as of December 31, 2014 and 2013, 10 of the Bank's member institutions (including Bank of America, National Association and Capital One, National Association) collectively accounted for $72.8 billion and $65.5 billion, respectively, of the Bank's total advances then outstanding, which represented 74.4 percent and 74.5 percent, respectively, of the Bank's total advances then outstanding. If, for any reason, the Bank were to lose, or experience a decrease in the amount of, its business relationships with its largest borrower or a combination of several of its large borrowers - whether as the result of any such member becoming a party to a merger or other transaction, or as a result of market conditions, competition or otherwise - the Bank's financial condition and results of operations could be negatively affected.

Changes in interest rates could significantly affect the Bank's earnings.

Like many financial institutions, the Bank realizes income primarily from the spread between interest earned on the Bank's outstanding loans and investments and interest paid on the Bank's borrowings and other liabilities. Although the Bank uses a number of measures to monitor and manage changes in interest rates, the Bank may experience “gaps” in the interest-rate sensitivities of its assets and liabilities resulting from both duration and convexity mismatches. The existence of gaps in interest-rate sensitivities means that either the Bank's interest-bearing liabilities will be more sensitive to changes in interest rates than its interest-earning assets, or vice versa. In either case, if interest rates move contrary to the Bank's position, any such gap could adversely affect the net present value of the Bank's interest-sensitive assets and liabilities, which could negatively affect the Bank's financial condition and results of operations.

The Bank’s businesses and results of operations are affected by the fiscal and monetary policies of the U.S. government, foreign governments and their agencies, including the Federal Reserve Board's policies to depress short-term and long-term interest rates to help stabilize the U.S. economy. The prolonged period of low interest rates could negatively impact the Bank's earnings and dividend yield as the Bank's interest rate spread remains low and the Bank's higher yielding assets mature or prepay in a low yield environment. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Net Interest Income for further discussion of the Bank's yield on assets, interest-rate spread, and reinvestment risk.

Prepayment or refinancing of mortgage assets, as well as foreclosure prevention efforts such as principal writedowns, could affect earnings.

The Bank invests in both MBS and whole mortgage loans. Changes in interest rates can significantly affect the prepayment patterns of these assets, and such prepayment patterns could affect the Bank's earnings. In the Bank's experience, it is difficult to hedge prepayment risk in mortgage loans. Therefore, prepayments of mortgage assets could have an adverse effect on the income of the Bank.

Federal agencies including the Finance Agency, Fannie Mae, and Freddie Mac have implemented various measures and programs during the past few years intended to prevent foreclosure, such as lowering a home owner's monthly payments through mortgage modifications or refinancings, providing temporary reductions or suspensions of mortgage payments, and helping homeowners transition to more affordable housing. These programs, proposals, and other measures could negatively impact investments in MBS, including the timing of cash flows and yield the Bank realizes from those investments. Additional developments could result in further increases to loss projections from these investments. Additionally, these developments could result in a significant number of prepayments on mortgage loans underlying investments in agency MBS. If that should occur, these investments would be paid off in advance of original expectations, subjecting the Bank to acceleration of premium amortization and reinvestment risk.

The Bank's exposure to credit risk could have an adverse effect on the Bank's financial condition and results of operations.

The Bank faces credit risk on advances, investments, derivatives, and mortgage loan assets. The Bank requires advances and other extensions of credit to be fully secured with collateral. The Bank evaluates the types of collateral pledged by the member and assigns a borrowing capacity to the collateral, based on the risk associated with that type of collateral. If the Bank has insufficient collateral before or after an event of payment default or failure of the member, or the Bank is unable to liquidate the collateral for the value assigned to it in the event of a payment default or failure of a member, the Bank could experience a credit loss on advances, which could adversely affect its financial condition and results of operations.

The Bank assumes secured and unsecured credit risk exposure associated with securities transactions, money market transactions, supplemental mortgage insurance agreements, and derivative contracts. The Bank routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. The insolvency or other inability of a significant counterparty to perform its obligations under a derivative contract or other agreement could have an adverse effect on the Bank's financial condition and results of operations. The Bank's credit risk may be exacerbated based on market movements that impact the value of the derivative or collateral positions, the failure of a counterparty to return collateral owed by the counterparty to the Bank, or when the collateral pledged to the Bank cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Bank. Any failure to properly perfect the Bank's security interest in collateral or any disruptions in the servicing of collateral in the event of a default could create credit losses for the Bank.

The Bank invests in U.S. agency (Fannie Mae, Freddie Mac, and Ginnie Mae) MBS and has historically invested in private-label MBS rated AAA by S&P or Fitch Ratings or Aaa by Moody's at the time of purchase. As of December 31, 2014, 18.0 percent of the Bank's MBS portfolio consisted of private-label MBS. Market prices for many of these private-label MBS have improved recently; however, given continued uncertainty in market conditions and the significant judgments involved in determining market value, there is a risk that declines in fair value in the Bank's MBS portfolio may occur and that the Bank may record additional other-than-temporary impairment losses in future periods, which could materially adversely affect the Bank's financial condition and results of operation.

The Bank uses master derivative contracts that contain provisions that require the Bank to net the exposure under all transactions with the counterparty to one amount to calculate collateral requirements. At times, the Bank enters into derivative contracts with U.S. branches or agency offices of foreign commercial banks in jurisdictions in which it is uncertain whether the netting provisions would be enforceable in the event of insolvency of the foreign commercial bank. Although the Bank attempts to monitor the creditworthiness of all counterparties, it is possible that the Bank may not be able to terminate the agreement with a foreign commercial bank before the counterparty would become subject to an insolvency proceeding.

The Bank relies upon derivative instruments to reduce its interest-rate risk associated with certain assets and liabilities on the Bank's balance sheet, including MBS and advances, and the Bank may be required to change its investment strategies and advance product offerings if it is not able to enter into effective derivative instruments on acceptable terms.

The Bank uses a significant amount of derivative instruments to attempt to reduce its interest-rate risk and mortgage prepayment risk. The Bank determines the nature and quantity of hedging transactions based on various factors, including market conditions and the expected volume and terms of advances. As a result, the Bank's effective use of these instruments depends on the ability of the Bank to determine the appropriate hedging positions in light of the Bank's assets, liabilities, and prevailing and anticipated market conditions. In addition, the effectiveness of the Bank's hedging strategy depends upon the Bank's ability to enter into these instruments with acceptable parties, upon terms satisfactory to the Bank, and in the quantities necessary to hedge the Bank's corresponding obligations.

The Dodd-Frank Act resulted in new statutory and regulatory requirements for derivative transactions, including those transactions used by the Bank to hedge interest-rate risk and other risks. As a result of these requirements, certain interest-rate swap transactions, whether they are initially executed with a swap dealer or subject to mandatory execution through a swap execution facility, are required to be cleared through a third-party central clearinghouse. Additionally, initial margin and variation margin are required to be posted for cleared derivatives. Furthermore, in 2014, the Commodity Futures Trading Commission proposed a rule, along with other regulators, that would subject non-cleared swaps to a mandatory two-way initial margin requirement, among other things. Any of these margin and capital requirements could adversely affect the liquidity and pricing of derivative transactions entered into by the Bank, making derivative trades more costly and less attractive as risk management tools.

If the Bank is unable to manage its hedging positions properly or is unable to enter into hedging instruments upon acceptable terms, the Bank may be unable to manage its interest-rate and other risks, or may be required to change its investment strategies and advance product offerings, which could affect the Bank's financial condition and results of operations.

The financial models and the underlying assumptions used to value financial instruments may differ materially from actual results.

The Bank makes significant use of business and financial models for managing risk. For example, the Bank uses models to measure and monitor exposures to various risks, including interest rate, prepayment, and other market risks, as well as credit risk. The Bank also uses models in determining the fair value of certain financial instruments when independent price quotations are not available or reliable. The degree of judgment in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility or on dealer prices or prices of similar instruments. Pricing models and their underlying assumptions are based on the Bank's best estimates for discount rates, prepayments, market volatility, and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, including derivatives, the related income and expense, and the expected future behavior of assets and liabilities. While models used by the Bank to value instruments and measure risk exposures are subject to periodic validation by independent parties, rapid changes in market conditions could impact the value of the Bank's instruments, as well as the Bank's financial condition and results of operations. Models are inherently imperfect predictors of actual results because they are based on assumptions about future performance. Changes in any models or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be materially different from actual results.

If the models are not reliable or the Bank does not use them appropriately, the Bank could make poor business decisions, including asset and liability management decisions, or other decisions, which could result in an adverse financial impact. Further, any strategies that the Bank employs to attempt to manage the risks associated with the use of models may not be effective.

The Bank may not be able to pay dividends at rates consistent with target ratios or to repurchase or redeem members' capital stock.

The Bank's board of directors may declare dividends on the Bank's capital stock, payable to members, from the Bank's unrestricted retained earnings and current net earnings. The Bank's ability to pay dividends and to repurchase or redeem capital stock is subject to statutory and regulatory liquidity requirements. The Bank has adopted a capital management plan to address regulatory guidance issued to all FHLBanks regarding retained earnings. The Bank's capital management plan requires the Bank to establish a target amount of retained earnings by considering factors such as forecasted income, mark-to-market adjustments on derivatives and trading securities, market risk, operational risk, and credit risk, all of which may be influenced by events beyond the Bank's control. Events such as changes in interest rates, collateral value, credit quality of members, and any future other-than-temporary impairment losses may affect the adequacy of the Bank's retained earnings and may require the Bank to reduce its dividends from its target ratios or suspend dividends altogether to achieve and maintain the targeted amount of retained earnings or to limit capital stock repurchases and redemptions to achieve and maintain the targeted amount of retained earnings. These actions could cause a reduction in members' demand for advances, or make it difficult for the Bank to retain existing members or to attract new members.

An economic downturn or natural disaster in the Bank's region could adversely affect the Bank's profitability and financial condition.

Economic recession over a prolonged period or other unfavorable economic conditions in the Bank's region (including on a state or local level) could have an adverse effect on the Bank's business, including the demand for Bank products and services, and the value of the Bank's collateral securing advances, investments, and mortgage loans held in portfolio. Portions of the Bank's region also are subject to risks from hurricanes, tornadoes, floods or other natural disasters. These natural disasters, including those resulting from significant climate changes, could damage or dislocate the facilities of the Bank's members, may damage or destroy collateral that members have pledged to secure advances or the mortgages the Bank holds for portfolio, or the livelihood of borrowers of the Bank's members, or otherwise could cause significant economic dislocation in the affected areas of the Bank's region.

The Bank relies heavily upon information systems and other technology, and any disruption or failure of such information systems or other technology could adversely impact our reputation, financial condition, and results of operations.

The Bank relies heavily upon information systems and other technology to conduct and manage its business. The Bank owns some of these systems and technology, and third parties own and provide to the Bank some of the systems and technology. Computer systems, software and networks can be vulnerable to failures and interruptions, including as the result of any “cyberattacks” (e.g., breaches, unauthorized access, misuse, computer viruses or other malicious code and other events) or other breaches of technology security, that may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. These failures, interruptions or cyberattacks could jeopardize the confidentiality or integrity of information, including personally identifiable information related to the Bank's advances collateral and AHP and MPF program activities, or otherwise interrupt the Bank's ability to conduct and manage its business effectively, including, without limitation, its hedging and advances activities. The Bank can make no assurance that it will be able to prevent, timely and adequately address, or mitigate the negative effects of, any such failure, interruption or cyberattack. Any failure or interruption could significantly harm the Bank's customer relations, risk management, and profitability, and could result in financial losses, legal and regulatory sanctions or other harm.

The Bank’s controls and procedures may fail or be circumvented, and risk management policies and procedures may be inadequate.

The Bank may fail to identify and manage risks related to a variety of aspects of its business, including operational risk, legal and compliance risk, interest-rate risk, liquidity risk, market risk and credit risk. The Bank has adopted controls, procedures, policies and systems to monitor and manage these risks. The Bank’s management cannot provide complete assurance that those controls, procedures, policies and systems are adequate to identify and manage the risks inherent in the Bank’s business. In addition, because the Bank’s business continues to evolve, the Bank may fail to fully understand the implications of changes in the business, and therefore, it may fail to enhance Bank’s risk governance framework to timely or adequately address those changes. Failed or inadequate controls and risk management practices could have an adverse effect on our financial condition and results of operations.

An increase in the percentage of AHP contributions that the Bank is required to make could decrease the Bank’s dividends payable to its members.

If the aggregate AHP contributions of the FHLBanks were to fall below $100 million, the Finance Agency would prorate the remaining sums among the FHLBanks, subject to certain conditions, as may be required to meet the minimum $100 million annual contribution. Increasing the Bank’s AHP contribution in such a scenario would reduce the Bank’s earnings and potentially reduce the dividend paid to members.

Item 1B.Unresolved Staff Comments.

None.

Item 2.Properties.

The Bank owns approximately 235,514 square feet of office space at 1475 Peachtree Street, NE, Atlanta, Georgia 30309. The Bank occupies approximately 189,412 square feet of this space. The Bank leases 11,093 square feet of office space in an off-site backup facility located in Marietta, Georgia and 384 square feet of off-site backup space in Norcross, Georgia for the Bank's disaster recovery data center. The Bank also leases 3,193 square feet of office space located in Washington, D.C. The Bank believes these facilities are well maintained and are adequate for the purposes for which they currently are used.

Item 3.

Legal Proceedings.

The Bank is subject to various other legal proceedings and actions from time to time in the ordinary course of its business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of those matters presently known to the Bank will have a material adverse effect on the Bank’s financial condition or results of operations.

The Bank's members own substantially all of the capital stock of the Bank. Former members, and certain non-members that own the Bank's capital stock as a result of a merger or acquisition of the Bank's member, own the remaining capital stock to support business transactions still carried on the Bank's balance sheet. The Bank's stock is not publicly traded or quoted, and there is no established marketplace for it, nor does the Bank expect a market to develop. The FHLBank Act and the Bank's capital plan prohibit the trading of its capital stock, except in connection with merger or acquisition activity.

A member may request in writing that the Bank redeem its excess capital stock at par value. Any such redemption request is subject to a five year redemption period after the Bank receives the request, subject to certain regulatory requirements and to the satisfaction of any ongoing stock investment requirements applicable to the member. In addition, any member may withdraw from membership upon five years written notice to the Bank. Subject to the member's satisfaction of any outstanding indebtedness and other statutory requirements, the Bank redeems at par value the member's capital stock upon withdrawal from membership. The Bank, in its discretion, may repurchase shares held by a member in excess of its required stock holdings, subject to certain limitations and thresholds in the Bank's capital plan. Since November 20, 2012, the Bank has repurchased activity-based excess capital stock on a daily basis. The par value of all capital stock is $100 per share, and the operating threshold for daily excess capital stock repurchases is $100 thousand. As of February 28, 2015, the Bank had 962 member and non-member shareholders and 47 million shares of its capital stock outstanding (including mandatorily redeemable shares).

The Bank declares and pays any dividends only after net income is calculated for the preceding quarter. The Bank declared quarterly cash dividends in 2014 and 2013 as outlined in the table below (dollars in millions).

2014

2013

Quarter

Amount

Annualized Rate (%) (1)

Amount

Annualized Rate (%) (2)

First

$

44

3.74

$

29

2.32

Second

44

3.74

26

2.29

Third

43

3.73

29

2.53

Fourth

51

4.23

32

2.76

____________

(1) Dividend rate was equal to the average three-month LIBOR for the preceding quarter plus 350 basis points for the first, second, and third quarters of 2014 and 400 basis points for the fourth quarter of 2014.

(2) Dividend rate was equal to the average three-month LIBOR for the preceding quarter plus 200, 200, 225, and 250 basis points for the first, second, third, and fourth quarters of 2013, respectively.

The Bank may pay dividends on its capital stock only out of its unrestricted retained earnings account or out of its current net income. The Bank's board of directors has discretion to declare or not declare dividends and to determine the rate of any dividends declared. The Bank's board of directors may neither declare nor require the Bank to pay dividends when it is not in compliance with all of its capital requirements or if, after giving effect to the dividend, the Bank would fail to meet any of its capital requirements or it is determined that the dividend would create a financial safety and soundness issue for the Bank.

Finance Agency regulations prohibit any FHLBank from issuing dividends in the form of stock or otherwise issuing new "excess stock" if that FHLBank has excess stock greater than one percent of that FHLBank's total assets or if issuing such dividends or new excess stock would cause that FHLBank to exceed the one percent excess stock limitation. Excess stock is FHLBank capital stock not required to be held by the member to meet its minimum stock requirement under an FHLBank's capital plan. As of December 31, 2014, the Bank's excess capital stock did not exceed one percent of its total assets. Historically, the Bank has not issued dividends in the form of stock or issued new "excess stock," and a member's existing excess activity-based stock is applied to any activity-based stock requirements related to new advances.

The Bank's board of directors has adopted a capital management plan that includes a targeted amount of retained earnings separate and apart from the restricted retained earnings account. For further discussion of the Bank's capital management plan, dividends, and the Amended Joint Capital Enhancement Agreement (Capital Agreement) pursuant to which the restricted retained earnings account was established, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Capital.

Because only member, former member, and certain non-member institutions, not individuals, may own the Bank's capital stock, the Bank has no equity compensation plans.

The Bank also issues standby letters of credit in the ordinary course of its business. From time to time, the Bank provides standby letters of credit to support members' obligations, members' letters of credit or obligations issued to support unaffiliated, third-party offerings of notes, bonds, or other securities. The Bank issued $19.5 billion, $13.9 billion, and $6.3 billion in standby letters of credit in 2014, 2013, and 2012, respectively. To the extent that these standby letters of credit are securities for purposes of the Securities Act of 1933, the issuance of the standby letter of credit by the Bank is exempt from registration pursuant to section 3(a)(2) thereof.

The following selected historical financial data of the Bank should be read in conjunction with the Banks 2014 audited financial statements and related notes thereto, and with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included elsewhere in this Report. The following data, insofar as it relates to each of the years 2010 to 2014, have been derived from annual financial statements, including the statements of condition as of December 31, 2014 and 2013 and the related statements of income for the years ended December 31, 2014, 2013, and 2012 and notes thereto appearing elsewhere in this Report. The financial information presented in the following table, and in the financial statements included in this Report, is not necessarily indicative of the financial condition or results of operations of any other interim or yearly periods (dollars in millions):

The amounts presented are the Bank’s primary obligations on consolidated obligations outstanding. The par value of the other FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was as follows (in millions):

December 31, 2014

$

718,218

December 31, 2013

654,076

December 31, 2012

574,257

December 31, 2011

578,118

December 31, 2010

678,528

(3)

Other income includes service fees and other. For the years ended December 31, 2014 and 2013, amount includes $15 million and $6 million net gain on early extinguishment of debt, respectively, For the years ended December 31, 2014 and 2013, amount includes a $4 million and $33 million gain on litigation settlements, net, respectively.

(4)

For the year ended December 31, 2010, amount includes $51 million which represents the reversal of a portion of the provision for credit losses established on a receivable due from Lehman Brothers Special Financing Inc..

(5)

On August 5, 2011, the Finance Agency certified that the FHLBanks have satisfied their Resolution Funding Corporation (REFCORP)

obligation.

(6)

Calculated as net income divided by average total equity.

(7)

Calculated as net income divided by average total assets.

(8)

Net interest margin is net interest income as a percentage of average earning assets.

(9)

Regulatory capital ratio is regulatory capital, which does not include accumulated other comprehensive income, but does include mandatorily redeemable capital stock, as a percentage of total assets as of year end.

(10)

Calculated as average total equity divided by average total assets.

(11)

Calculated as dividends declared during the year divided by net income during the year.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis relates to the Bank's financial condition as of December 31, 2014 and 2013, and results of operations for the years ended December 31, 2014, 2013, and 2012. This section explains the changes in certain key items in the Bank's financial statements from year to year, the primary factors driving those changes, the Bank's risk management processes and results, known trends or uncertainties that the Bank believes may have a material effect on the Bank's future performance, as well as how certain accounting principles affect the Bank's financial statements.

This discussion should be read in conjunction with the Bank's audited financial statements and related notes for the year ended December 31, 2014 included in Item 8 of this Report. Readers also should review carefully “Special Cautionary Notice Regarding Forward-looking Statements” and Item 1A, Risk Factors, for a description of the forward-looking statements in this Report and a discussion of the factors that might cause the Bank's actual results to differ, perhaps materially, from these forward-looking statements.

Executive Summary

Financial Condition

As of December 31, 2014, total assets were $138.3 billion, an increase of $16.0 billion or 13.1 percent, from December 31, 2013. This increase was primarily due to a $10.1 billion, or 11.2 percent, increase in advances and a $9.6 billion, or 35.5 percent increase in total investments, partially offset by a $3.5 billion, or 79.1 percent, decrease in cash and due from banks.

As of December 31, 2014, total liabilities were $131.4 billion, an increase of $15.7 billion, or 13.6 percent, from December 31, 2013. This increase was primarily due to a $16.3 billion, or 14.5 percent, increase in COs to fund the increase in advances.

As of December 31, 2014, total capital was $7.0 billion, an increase of $339 million, or 5.10 percent, from December 31, 2013. The increase in total capital from December 31, 2013 to December 31, 2014 was primarily due to the issuance of $5.0 billion in capital stock related to new advance activity and $254 million in comprehensive income during the period. Comprehensive income consists of $271 million of net income and $17 million in other comprehensive loss. This increase was partially offset by the repurchase/redemption of $4.8 billion in excess capital stock, excluding capital stock classified as mandatorily redeemable capital stock, and the payment of $182 million in dividends.

The Bank recorded net income of $271 million for 2014, a decrease of $67 million, or 19.9 percent, from net income of $338 million for 2013. Interest income decreased by $113 million primarily due to decreased yields on advances and long-term investments. This decrease was offset by a $95 million decrease in interest expense, which resulted in a decrease in net interest income of $18 million for 2014. Noninterest income decreased $61 million during 2014, compared to 2013, primarily due to higher litigation settlements related to MBS during 2013 and decreases in net gains on derivatives and hedging activities resulting from lower long-term interest rates during 2014. This decrease was partially offset by a decrease in net losses on trading securities, as well as by the prepayment of previously restructured advances prior to their maturity.

One way in which the Bank analyzes its performance is by comparing its annualized return on equity (ROE) to three-month average LIBOR. The Bank’s ROE was 4.11 percent for 2014 compared to 5.42 percent for 2013. ROE decreased for 2014, compared to 2013, primarily as a result of a decrease in net income, and an increase in average total capital during the year. ROE spread to three-month average LIBOR decreased to 388 basis points for 2014 compared to 515 basis points for 2013. The decrease in the ROE spread to LIBOR was primarily due to the decrease in ROE.

During 2014, the Bank maintained its focus on an advances-driven, conservative-risk, steady-return business model, which enabled the Bank to report net income, pay dividends and repurchase excess stock consistently throughout the year despite continued uncertainties in the market.

The state of the economy is the single largest driver in determining the Bank's overall business outlook and impacts advance demand, asset and collateral values, member financial stability, funding costs, and many other facets of the Bank's portfolio. While certain areas of the economy are experiencing improvement, such as unemployment, consumer confidence, and housing, the improvement is modest. In addition, the outcome of certain factors, such as fiscal and monetary policies or performance of global economies, could have a significant effect - either positive or negative - on the national economy and the Bank's economic performance.

The prolonged low interest rate environment has resulted in borrowers strongly favoring short-term advances, and the Bank expects this preference to continue during 2015. Although the Bank experienced an overall increase in advances during 2014 compared to 2013, the high proportion of short-term advances subjects the Bank to significant advance rollover risk. In addition, members continue to experience high levels of liquidity and low-to-modest loan demand, which may reduce overall member demand for advances. Given the economic uncertainties discussed above, the Bank cannot accurately predict its ability to refinance or grow advances during the year. The Bank continues to focus on developing additional products and services that enhance members' ability to respond to economic conditions and their increasing regulatory compliance requirements such as liquidity requirements based on Basel III.

The continued low rate environment also creates challenges for the Bank's investment portfolio, as higher-yielding investments mature or prepay in an environment with few attractive reinvestment opportunities, and for the Bank's debt portfolio, as maturing debt is refinanced at less attractive spreads. The Bank expects these trends to continue while interest rates remain low, which could continue to negatively affect net interest income. Although a higher interest rate environment is more favorable for the Bank's total profitability, it may have a negative impact on ROE spread to LIBOR.

The following table presents the distribution of the Bank’s total assets, liabilities, and capital by major class as of the dates indicated (dollars in millions). These items are discussed in more detail below.

As of December 31,

2014

2013

Increase (Decrease)

Amount

Percent

of Total

Amount

Percent

of Total

Amount

Percent

Advances

$

99,644

72.03

$

89,588

73.24

$

10,056

11.22

Long-term investments

27,147

19.62

24,142

19.74

3,005

12.45

Short-term investments

9,355

6.76

2,802

2.29

6,553

233.84

Mortgage loans, net

746

0.54

918

0.75

(172

)

(18.70

)

Other assets

1,452

1.05

4,866

3.98

(3,414

)

(70.17

)

Total assets

$

138,344

100.00

$

122,316

100.00

$

16,028

13.10

Consolidated obligations, net:

Discount notes

$

37,162

28.29

$

32,202

27.84

$

4,960

15.40

Bonds

92,088

70.11

80,728

69.80

11,360

14.07

Deposits

1,110

0.84

1,752

1.51

(642

)

(36.64

)

Other liabilities

993

0.76

982

0.85

11

1.08

Total liabilities

$

131,353

100.00

$

115,664

100.00

$

15,689

13.56

Capital stock

$

5,150

73.67

$

4,883

73.41

$

267

5.47

Retained earnings

1,746

24.96

1,657

24.90

89

5.34

Accumulated other comprehensive income

95

1.37

112

1.69

(17

)

(14.64

)

Total capital

$

6,991

100.00

$

6,652

100.00

$

339

5.10

Advances

The following table sets forth the Bank's advances outstanding by year of maturity and the related weighted-average interest rate (dollars in millions):

Advances outstanding as of December 31, 2014 increased by 11.2 percent compared to December 31, 2013. As a result of the prolonged low interest rate environment, the majority of new advances are short-term advances. As of December 31, 2014, 74.5 percent of the Bank's advances were fixed-rate. However, the Bank often simultaneously enters into derivatives with the issuance of advances to convert the rates on them, in effect, into a short-term variable interest rate, the majority of which are based on LIBOR. As of December 31, 2014 and 2013, 41.9 percent and 41.7 percent, respectively, of the Bank's fixed-rate advances were swapped and 2.56 percent and 28.2 percent, respectively, of the Bank's variable-rate advances were swapped. The Bank also offers variable-rate advances that may be tied to indices such as the federal funds rate, prime rate, or constant maturity swap rates.

As of December 31, 2014, 74.4 percent of the Bank's total advances were outstanding to its 10 largest borrowing member institutions. Further information regarding the Bank's 10 largest borrowing member institutions and breakdown of their individual advance balances as of December 31, 2014 is contained in Item 1, Business—Credit Products—Advances. Management believes that the Bank holds sufficient collateral, on a member-specific basis, to secure the advances to all borrowers, including these 10 institutions, and the Bank does not expect to incur any credit losses on these advances.

Supplementary financial data on the Bank's advances is set forth under Item 8, Financial Statements and Supplementary Information (Unaudited).

Investments

The following table sets forth more detailed information regarding short- and long-term investments held by the Bank (dollars in millions):

As of December 31,

Increase (Decrease)

2014

2013

Amount

Percent

Short-term investments:

Interest-bearing deposits (1)

$

1,010

$

1,007

$

3

0.28

Securities purchased under agreements to resell

1,960

—

1,960

100.00

Federal funds sold

6,385

1,795

4,590

255.71

Total short-term investments

9,355

2,802

6,553

233.84

Long-term investments:

State or local housing agency debt obligations

82

93

(11

)

(11.24

)

U.S. government agency debt obligations

7,935

5,404

2,531

46.83

Mortgage-backed securities:

U.S. agency obligations-guaranteed single family residential

366

465

(99

)

(21.36

)

Government-sponsored enterprises single family residential

13,665

13,311

354

2.65

Government-sponsored enterprises multi-family commercial

1,663

641

1,022

159.50

Private-label residential

3,436

4,228

(792

)

(18.71

)

Total mortgage-backed securities

19,130

18,645

485

2.60

Total long-term investments

27,147

24,142

3,005

12.45

Total investments

$

36,502

$

26,944

$

9,558

35.47

____________

(1)

As of December 31, 2014 and 2013, interest-bearing deposits includes a $1.0 billion business money market account with Branch Banking and Trust Company, one of the Bank’s ten largest borrowers.

The increase in short-term investments from December 31, 2013 to December 31, 2014 was primarily due to an increase in federal funds sold and securities purchased under agreements to resell as a result of increased liquidity requirements to meet expected advances demand. The amount held in federal funds sold or securities purchased under agreements to resell will vary each day based on the Bank’s liquidity requirements as a result of advances demand, the earning rates, and the availability of high quality counterparties. Throughout 2014, the federal funds rate on federal funds sold was at or above the Bank's minimum investment target rate, as determined by the Bank's internal policy, which allowed the Bank to invest its available cash in federal funds sold or in securities purchased under agreements to resell.

The increase in long-term investments from December 31, 2013 to December 31, 2014 was primarily due to an increase in GSE MBS, partially offset by a decrease in private-label MBS. The Bank suspended new purchases of private-label MBS beginning

in the first quarter of 2008, resulting in a greater percentage of GSE MBS as of December 31, 2014 compared to December 31, 2013.

The Finance Agency regulations prohibits an FHLBank from purchasing MBS and asset-backed securities if its investment in such securities exceeds 300 percent of the FHLBank’s previous month-end regulatory capital on the day it purchases the securities. The Bank was in compliance with this regulatory requirement as of as of December 31, 2014 and 2013, as these investments amounted to 275 percent and 282 percent of regulatory capital, respectively.

Refer to Note 6—Available-for-sale Securities and Note 7—Held-to-maturity Securities to the Bank’s 2014 audited financial statements for information on securities with unrealized losses as of December 31, 2014 and 2013.

The Bank evaluates its individual investment securities for other-than-temporary impairment on a quarterly basis, as described in Note 8—Other-than-temporary Impairment to the Bank’s 2014 audited financial statements.

Mortgage Loans Held for Portfolio

The decrease in mortgage loans held for portfolio from December 31, 2013 to December 31, 2014 was primarily due to the maturity and prepayment of these assets during the year. The Bank ceased purchasing new mortgage loans in 2008. In addition, during the third quarter of 2013, the Bank reclassified its multifamily mortgage loan portfolio from the held-for-portfolio classification to mortgage loans held for sale. Subsequently, in August 2013, these loans, with an unpaid principal balance of $18 million, were sold, which resulted in a gain of less than $1 million.

As of December 31, 2014 and 2013, the Bank’s conventional mortgage loan portfolio was concentrated in the southeastern United States because those members selling loans to the Bank were located primarily in that region. The following table provides the percentage of unpaid principal balance of conventional single-family residential mortgage loans held for portfolio for the five largest state concentrations.

The Bank funds its assets primarily through the issuance of consolidated obligation bonds and, to a lesser extent, consolidated obligation discount notes. The increase in COs from December 31, 2013 to December 31, 2014 is a result of an increase in advances outstanding during the period. As of December 31, 2014, CO issuances financed 93.4 percent of the $138.3 billion in total assets, remaining relatively stable compared to the financing ratio of 92.3 percent as of December 31, 2013.

As of December 31, 2014 and December 31, 2013, COs outstanding were primarily fixed rate. However, the Bank often simultaneously enters into derivatives with the issuance of CO bonds to convert the interest rates, in effect, into short-term variable interest rates, usually based on LIBOR. As of December 31, 2014 and 2013, 88.6 percent and 77.5 percent, respectively, of the Bank’s fixed-rate CO bonds were swapped and 0.33 percent and 0.34 percent, respectively, of the Bank’s variable-rate CO bonds were swapped. As of December 31, 2014, 4.65 percent of the Bank's fixed-rate CO discount notes were swapped, and no discount notes were swapped to a variable rate as of December 31, 2013.

As of December 31, 2014, callable CO bonds constituted 24.6 percent of the total par value of CO bonds outstanding, compared to 29.8 percent as of December 31, 2013. This decrease was due to market conditions during 2013 that favored the issuance of callable CO bonds. The derivatives that the Bank may employ to hedge against the interest-rate risk associated with the Bank’s callable CO bonds are callable by the counterparty; if the call feature of the derivative is exercised, the Bank in turn

will generally call the hedged CO bond. These call features pose risk that the Bank could be required to refinance a substantial portion of outstanding liabilities during times of decreasing interest rates. Swap spreads typically tend to decrease as interest rates decrease, resulting in less favorable funding costs for the Bank. Call options on unhedged callable CO bonds generally are exercised when the bond can be replaced at a lower economic cost.

The Bank offers demand and overnight deposit programs to members primarily as a liquidity management service. In addition, a member that services mortgage loans may deposit in the Bank funds collected in connection with the mortgage loans, pending disbursement of those funds to the owners of the mortgage loan. For demand deposits, the Bank pays interest at the overnight rate. Most of these deposits represent member liquidity investments, which members may withdraw on demand. Therefore, the total account balance of the Bank’s deposits may be volatile. As a matter of prudence, the Bank typically invests deposit funds in liquid short-term assets. Member loan demand, deposit flows, and liquidity management strategies influence the amount and volatility of deposit balances carried with the Bank.

Capital

The FHLBank Act and Finance Agency regulations specify that each FHLBank must meet certain minimum regulatory capital standards. The Bank must maintain (1) total capital in an amount equal to at least four percent of its total assets; (2) leverage capital in an amount equal to at least five percent of its total assets; and (3) permanent capital in an amount equal to at least its regulatory risk-based capital requirement. Permanent capital is defined by the FHLBank Act and applicable regulations as the sum of paid-in capital for Class B stock and retained earnings. Mandatorily redeemable capital stock is considered capital for regulatory purposes. These regulatory capital requirements, and the Bank's compliance with these requirements, are shown in detail in Note 15—Capital and Mandatorily Redeemable Capital Stock to the Bank's 2014 audited financial statements.

Finance Agency regulations establish criteria based on the amount and type of capital held by an FHLBank for four capital classifications as follows:

Undercapitalized - FHLBank does not meet one or both of its risk-based or minimum capital requirements;

•

Significantly Undercapitalized - FHLBank has less than 75 percent of one or both of its risk-based or minimum capital requirements; and

•

Critically Undercapitalized - FHLBank total capital is two percent or less of total assets.

Under the regulations, the Director of the Finance Agency (Director) will make a capital classification for each FHLBank at least quarterly and notify the FHLBank in writing of any proposed action and provide an opportunity for the FHLBank to submit information relevant to such action. The Director is permitted to make discretionary classifications. An FHLBank must provide written notice to the Finance Agency within 10 days of any event or development that has caused or is likely to cause its permanent or total capital to fall below the level required to maintain its most recent capital classification or reclassification. The regulations delineate the types of prompt corrective actions the Director may order in the event an FHLBank is not adequately capitalized, including submission of a capital restoration plan by the FHLBank and restrictions on its dividends, stock redemptions, executive compensation, new business activities, or any other actions the Director determines will ensure safe and sound operations and capital compliance by the FHLBank. On December 19, 2014, the Bank received notification from the Director that, based on September 30, 2014 data, the Bank meets the definition of “adequately capitalized.”

As of December 31, 2014 and 2013, the Bank had capital stock subject to mandatory redemption from 12 and 17 members and former members, respectively, consisting of B1 membership stock and B2 activity-based capital stock. The Bank is not required to redeem or repurchase such capital stock until the expiration of the five-year redemption period or, with respect to activity-based capital stock, until the later of the expiration of the five-year redemption period or the activity no longer remains outstanding. The Bank, in its discretion, may repurchase excess capital stock subject to certain limitations and thresholds in the Bank's capital plan.

Prior to November 20, 2012, the Bank made its determination regarding the repurchase of excess capital stock on a quarterly basis, after financial results were known for the preceding quarter. On November 19, 2012, the Bank repurchased all membership excess capital stock and activity-based excess capital stock. Shareholders with excess capital stock on the

repurchase date were not permitted to opt out of the repurchase. Effective November 20, 2012, the Bank began repurchasing activity-based excess capital stock on a daily basis. The operational threshold for daily excess stock repurchases is $100 thousand. The change to daily excess stock repurchases helps reduce the volatility of capital stock balances due to large advance maturities and reduces pressure on the Bank to invest large amounts of capital in a low rate environment.

The FHLBanks entered into a Capital Agreement, which is intended to enhance the capital position of each FHLBank. Under the Capital Agreement each FHLBank allocates 20 percent of its net income each quarter to a separate retained earnings account until the account balance equals at least one percent of the FHLBank’s average balance of outstanding consolidated obligations for the previous quarter. Restricted retained earnings are not available to pay dividends and are presented separately on the Statements of Condition.

Effective October 28, 2013, the Finance Agency issued a final rule that requires each FHLBank to implement stress testing under baseline, adverse, and severely adverse scenarios on its consolidated earnings, capital, and other related factors, over a nine-quarter forward horizon based on its portfolio as of September 30 of the previous year. Under the rule, the Finance Agency will annually issue guidance on the scenarios, assumptions and methodologies to be used in conducting the stress test. The Bank is required to annually disclose publicly the results of its severely adverse economic conditions stress test. The Bank filed a report on Form 8-K disclosing the results of the severely adverse economic conditions stress test on July 17, 2014. The Bank expects to disclose its 2015 severely adverse economic conditions stress test results between July 15 and July 30, 2015.

Under its capital management plan, the Bank targets a capital-to-assets ratio of 4.75 percent to 5.25 percent, and retained earnings equal to the restricted retained earnings account balance plus extremely stressed scenario losses. The Bank also attempts to maintain additional retained earnings equal to two quarters of dividends, based on the current dividend rate and current stock balance. The Bank believes that daily excess stock repurchases and consistent dividends give members greater certainty of a return of their principal or the receipt of a dividend, which in turn may have a positive impact on members' appetite for advances. The Bank targets the payment of dividends each quarter that are consistent with an attractive rate of return on capital to its member shareholders relative to an established benchmark, LIBOR, after providing for retained earnings as discussed above. Historically, the Bank's dividend rate has increased with increases in LIBOR, while the spread between the dividend rate and LIBOR may shrink. Conversely, the dividend rate may decrease during periods of lower LIBOR, while the spread may increase. The Bank's ability to maintain dividends consistent with its recent trend depends on LIBOR remaining relatively stable, the Bank's actual financial performance, its ability to maintain adequate retained earnings, and the discretion of the Bank's board of directors. Information about the Bank's dividends declared during 2014 and 2013 is contained in Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The following is a discussion and analysis of the Bank's results of operations for the years ended December 31, 2014, 2013, and 2012.

Net Income

The following table sets forth the Bank’s significant income items for the years ended December 31, 2014, 2013, and 2012, and provides information regarding the changes during the periods (dollars in millions). These items are discussed in more detail below.

Increase (Decrease)

For the Years Ended December 31,

2014 vs. 2013

2013 vs. 2012

2014

2013

2012

Amount

Percent

Amount

Percent

Net interest income

$

323

$

341

$

376

$

(18

)

(5.63

)

$

(35

)

(8.95

)

(Reversal) provision for credit losses

(5

)

5

6

(10

)

(194.82

)

(1

)

(19.24

)

Noninterest income

105

166

55

(61

)

(36.65

)

111

200.17

Noninterest expense

132

127

125

5

3.22

2

2.64

Total assessments

30

37

30

(7

)

(19.83

)

7

23.86

Net income

$

271

$

338

$

270

$

(67

)

(19.93

)

$

68

24.93

Net Interest Income

The primary source of the Bank’s earnings is net interest income. Net interest income equals interest earned on assets (including member advances, mortgage loans, MBS held in portfolio, and other investments), less the interest expense incurred on liabilities (including COs, deposits, and other borrowings). Also included in net interest income are miscellaneous related items such as prepayment fees earned and the amortization of debt issuance discounts, concession fees, and certain derivative instruments and hedging activities related adjustments. The Bank also recognizes significant improvements in expected cash flows related to other-than-temporary impairment securities through net interest income.

The decrease in net interest income during 2014, compared to 2013, was primarily due to an eight basis points decrease in yield on the Bank's advances and a 39 basis points decrease in yield on the Bank's long-term investments portfolio. The decrease in yield on advances was primarily due to $48 million of accelerated amortization related to prepayments of previously restructured advances during the third quarter of 2014, as well as a reduction in rates on advances due to the issuance of shorter-term advances during the year. The yield on the Bank’s long-term investment portfolio continued to decline primarily due to the maturity or prepayment of higher yielding investments and the purchase of lower yielding instruments, as well as due to hybrid investments converting from a fixed interest rate to a lower variable interest rate. The decrease in net interest income was partially offset by a reduction in rates on the Bank's long-term debt during the year.

The decrease in net interest income during 2013, compared to 2012, was primarily due to a 50 basis points decrease in yield on the Bank’s long-term investments portfolio during the year due to the same reasons as stated above. The decrease in net interest income was partially offset by a reduction in rates on the Bank's long-term debt during 2013.

The following table summarizes key components of net interest income for the years presented (in millions):

For the Years Ended December 31,

2014

2013

2012

Interest income:

Advances

$

180

$

233

$

294

Investments

448

497

603

Mortgage loans

50

61

76

Total interest income

678

791

973

Interest expense:

Consolidated obligations

354

448

593

Interest-bearing deposits

—

1

1

Mandatorily redeemable capital stock

1

1

3

Total interest expense

355

450

597

Net interest income

$

323

$

341

$

376

As discussed above, net interest income includes components of hedging activity. When a hedging relationship is discontinued, the cumulative fair value adjustment on the hedged item will be amortized into interest income or expense over the remaining life of the asset or liability. Also, when hedging relationships qualify for hedge accounting, the interest components of the hedging derivatives will be reflected in interest income or expense. As shown in the table summarizing the net effect of derivatives and hedging activity on the Bank’s results of operations, the impact of hedging on net interest income was a decrease of $608 million, $623 million, and $1.0 billion during the years ended December 31, 2014, 2013 and 2012, respectively.

The following table presents spreads between the average yield on total interest-earning assets and the average cost of interest-bearing liabilities for the years ended December 31, 2014, 2013, and 2012 (dollars in millions). The interest-rate spread is affected by the inclusion or exclusion of net interest income or expense associated with the Bank's derivatives. For example, as discussed above, if the derivatives qualify for fair-value hedge accounting under GAAP, the interest income or expense associated with the derivatives is included in net interest income and in the calculation of interest-rate spread. If the derivatives do not qualify for fair-value hedge accounting under GAAP, the interest income or expense associated with the derivatives is excluded from net interest income and the calculation of the interest-rate spread and recorded in noninterest income (loss) as "Net gains on derivatives and hedging activities." Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest-rate spread. The Bank's interest-rate spread was 24 basis points, 26 basis points, and 27 basis points for 2014, 2013, and 2012, respectively. The decrease in interest-rate spread from 2013 to 2014, was primarily due to a decrease in yield on advances primarily due to accelerated amortization related to prepayments of previously restructured advances and a reduction in rates on advances due to the issuance of shorter-term advances during the year. The decrease in interest rate-spread from 2012 to 2013, was primarily due to a decrease in yield on the Bank's long-term investments portfolio.

Net interest income for the years presented was affected by changes in average balances (volume change) and changes in average rates (rate change) of interest-earning assets and interest-bearing liabilities. The following table presents the extent to which volume changes and rate changes affected the Bank’s interest income and interest expense (in millions). As noted in the table below, the overall change in net interest income between 2014 and 2013, and between 2013 and 2012, was primarily rate related.

2014 vs. 2013

2013 vs. 2012

Volume (1)

Rate (1)

Increase (Decrease)

Volume (1)

Rate (1)

Increase (Decrease)

Increase (decrease) in interest income:

Interest-bearing deposits

$

(1

)

$

—

$

(1

)

$

(2

)

$

—

$

(2

)

Certificates of deposit

—

—

—

(1

)

(1

)

(2

)

Securities purchased under agreements to resell

—

—

—

1

(1

)

—

Federal funds sold

1

(2

)

(1

)

(5

)

(4

)

(9

)

Long-term investments

45

(92

)

(47

)

17

(110

)

(93

)

Advances

16

(69

)

(53

)

9

(70

)

(61

)

Mortgage loans

(14

)

3

(11

)

(20

)

5

(15

)

Total

47

(160

)

(113

)

(1

)

(181

)

(182

)

Increase (decrease) in interest expense:

Interest-bearing deposits

—

(1

)

(1

)

—

—

—

Short-term debt

6

(4

)

2

2

—

2

Long-term debt

17

(113

)

(96

)

(1

)

(146

)

(147

)

Other borrowings

—

—

—

(3

)

1

(2

)

Total

23

(118

)

(95

)

(2

)

(145

)

(147

)

Increase (decrease) in net interest income

$

24

$

(42

)

$

(18

)

$

1

$

(36

)

$

(35

)

____________

(1)

Volume change is calculated as the change in volume multiplied by the previous rate, while rate change is the change in rate multiplied by the previous volume. The rate/volume change, change in rate multiplied by change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of its total.

Noninterest Income (Loss)

The following table presents the components of noninterest income (loss) (dollars in millions):

Increase (Decrease)

For the Years Ended December 31,

2014 vs. 2013

2013 vs. 2012

2014

2013

2012

Amount

Percent

Amount

Percent

Net impairment losses recognized in earnings

$

(3

)

$

—

$

(16

)

$

(3

)

*

$

16

99.96

Net losses on trading securities

(60

)

(100

)

(67

)

40

39.66

(33

)

(49.01

)

Net gains on derivatives and hedging activities

120

204

117

(84

)

(41.05

)

87

74.03

Gain on early extinguishment of debt

15

6

—

9

168.82

6

100.00

Letters of credit fees

26

20

18

6

33.51

2

9.79

Gain on litigation settlements, net

4

33

—

(29

)

(87.56

)

33

100.00

Other

3

3

3

—

(6.89

)

—

(12.60

)

Total noninterest income

$

105

$

166

$

55

$

(61

)

(36.65

)

$

111

200.17

____________

* Not meaningful

The $84 million decrease in net gains on derivatives and hedging activities during 2014, compared to 2013, was primarily due to a decrease in gains on effective hedges of $76 million as well as a decrease in gains of $37 million on stand-alone derivatives that hedge the trading securities. There was also a $27 million decrease in gains associated with the Bank's stand-alone derivatives used to macro hedge the MBS portfolio. The decrease in long-term interest rates during 2014 was the primary driver of the reduced fair value and resulting decreased income in these items. The decrease in net gains on derivatives and hedging activities was partially offset by the prepayment of previously restructured advances prior to their maturity.

The $87 million increase in net gains on derivatives and hedging activities during 2013, compared to 2012, was primarily due to an increase in gains on effective hedges of $56 million as well as an increase in gains of $40 million on stand-alone derivatives that hedge the trading securities. There was also a $17 million increase in gains associated with the Bank's stand-

alone derivatives used to macro hedge the MBS portfolio. This increase was partially offset by a $23 million decrease in gains associated with geography related amortizations and interest reclassifications that are offset in net interest income.

The $33 million increase in net losses on trading securities during 2013, compared to 2012, was primarily due to a decrease in the fair value of securities due to changes in rates during 2013. As noted above, the increase in the loss on the trading securities was offset by an increase in the gains on the derivatives hedging these securities of $40 million.

In 2014 and 2013, the Bank agreed with certain of its defendants to settle claims against them arising from certain investments in private-label MBS. As a result of these settlement agreements, during 2014 and 2013 the Bank recorded gains on litigation settlements of $4 million and $33 million, respectively, which are net of legal fees and expenses.

The following tables summarize the net effect of derivatives and hedging activity on the Bank’s results of operations (in millions):